ChartSmarter Wednesday Game Plan 3/14/18

Markets took one on the chin Tuesday as the Nasdaq slumped 1%, ending a 7 session winning streak. It registered a nasty bearish engulfing candle at all time highs on strong volume, and time will tell but perhaps this is a bear trap at the breakthrough the double top at 7500 last Friday. It was a level much talked about and maybe it is just volatility returning, which we sometimes forget goes both ways. The S&P 500 dropped .6% and it to looks to be receding after its own break above a symmetrical triangle, and keep in mind when breakouts fizzle so quickly after a nice move obviously it is not a good sign. The Russell 2000 backed off after coming within 9 handles of a cup base breakout, and quite frankly it and the Nasdaq have posted nice runs of late so a little backing off could be warranted. The VIX on the other hand which has been portrayed by many in a negative light, and it came close to recapturing its 50 day SMA and has defended the cup base trigger of 15 very well. Last Thursday and Friday which completed a 6 day losing streak did have nice long lower tails, and it could be well rested for a move north. Today recorded a spinning top candle which often signals a weakening on the prevailing trend.

Looking at individual sectors the leading groups were hit the hardest as technology and financials were the weakest as the XLK and XLF both fell by 1.1%. And the leading groups were the defensive oriented spaces with the utilities, healthcare and staples all outperforming. We have mentioned the XLU stalling right at its previous breakdown below a bear flag that aligned with the very round 50 number. The longer it stays put here and refuses to drop the more bullish it will be. A positive first step for the ETF will be a move back above the 50 day SMA which it has been underneath since mid December last year. The XLF seems a little gun shy once again at the round 30 number, which has recorded just 4 CLOSES above in 2018 thus far. The XLE is flirting with its 200 day SMA, and is dominated by XOM and CVX, and I can see how one could interpret the pattern as a bearish head and shoulders. The bear flag was becoming a bit long in duration, but again this is not an instrument I have a very strong opinion on.

The semiconductors remain hot, but there has been a little bit of rest this week, well deserved rest at that. Some crazy action this week in the news and on the charts with the AVGO QCOM announcement and MU screamed higher by almost 9% Monday, (it rose more than 11% last week in the strongest weekly volume since the week ending 10/11/13) a day after a bearish engulfing candle last Friday, and a good example of why PRICE action is and always will be your best indicator. Below is the chart of another semiconductor MKSI and how it was profiled in our Tuesday 3/6 Game Plan. Here is a good look at what we refer to as “clusters of evidence” where a couple triggers will come into play in the same area. For this chart it was the bull flag finding support at a prior cup base breakout level. Tuesday stopped an 8 session winning streak, and recorded a bearish engulfing candle after the prior days spinning top. Some sideways trade here will be in order for the bulls after a powerful recent move.